Former Prosche Chief Executive Wieland Wiedeking faces prosecution for insider trading. Wiedeking, who did a splendid job in increasing Porsche's shareholder value, has become victim of poor economic understanding as expressed in laws criminalizing insider trading.
First, the entire market system rests on as many individuals as possible exploiting as many arbitrage opportunities as they can identify. Each and every one of us is active in a decentralized coordination system and depends on local or private information. All economic agents rely on prices as signals of other people's information set.
Second, and closely related, global coordination depends on all these agents feeding the price system with their local information. What is not expressed by active demand and supply cannot be communicated to others. If food prices do not rise in response to the excess demand of the poor, there is no increase in food production in those countries with comparative advantages to supply these goods. The same is true for the individual level. The poor remain hungry if global traders and producers do not take advantage and arbitrage. The same logic applies to the financial markets, even more so, which appease reasonable forecasts of the future evolution of preferences, technologies, or resource endowments and signal them by asset prices.
Thus, economics applauds arbitrage activity since it is makes the economy globally stable. A globally instable economy, once hit by a negative shock, collapses and our societies degenerate. Great and open societies are by necessity large economies, complex networks of decentralized activity. These economies depend heavily on trading based on superior knowledge and information.
Thus, insider trading is a great thing. It makes markets more efficient, and asset prices better signals of relative intertemporal scarcities. It is not something only mangers can do. We all own our comparative advantages to our more or less individual knowledge and ability sets. Right because managers have superior knowledge that is in part unique, it is essential to allow them to exploit these profit opportunities and thereby make their knowledge available to the public. If you do not like managers to become even richer, you may reduce other components of their salary. Of course, there is always the problem to focus management activity on sustainable performance. But this is a general problem and not something special to insider trading. So legalize insider trading and stop prosecuting crimes without a vitcim.
